radian6

Ok, sure, buy another help desk application this time for the small company market, why not. With BMC offering a help desk solution for big companies, this makes for a certain amount of symmetry and product line completeness.

I don’t think the announcement surprised me or any of the judges on the CRM Idol committee. Assistly has been impressive in the competition and we’ll see where it goes. As acquisitions go this was on the small to medium end of the Salesforce spectrum and certainly not the $300 million+ price tag that Radian6 was.

I think the Radian6 deal might have taught Salesforce a lesson — keep a shrewd eye on the marketplace and make your acquisitions while companies with good ideas are still small. You spend less that way.

You can buy a half dozen Assistly’s and still have enough in your pocket for a very nice long weekend in Vegas for what Radian6 cost. That means you can be wrong five out of six times and break even. That’s even better than baseball where a good hitter is right three out of ten times.

Why it took so long for Salesforce to buy Radian6 is a mystery to me. Had they bought earlier when this promising company was less promising they would, I am sure saved some money and Radian6 would still have had a nice liquidity event. But it is what it is Radian6 is proving to be a good pick up and hopefully Assistly will also prove out in the near future.

Marketing has become the new hot spot in CRM. During the recession and even before, there was a great flurry of interest in customer service and related things. Consequently, we have seen a lot of attention being paid to customer experience and much of the social media oriented growth in that period was centered on the existing customer.

As the economy has begun to improve the orientation has been more toward sales but with a decided twist. By their actions, vendors have made it clear that they understand that the rule of the day is cross selling and up selling the customer base. That’s a big difference from rushing out to sell net new brands, products and categories. With that shift it becomes more important than ever to market well and at a macro level that spells the rising importance of marketing automation. This might seem redundant but it is not.

When we sell net new categories marketing is rather bare bones. Uber-marketer Thor Johnson describes marketing in explosive new markets as PR and brochure marketing and he has a point. When the world is a green field you need little more than a list of names to cold call. But the tenor of these times requires more incisive understanding of customer motivations and needs, hence the emphasis on data gathering through social and other channels, analytics and even revenue performance management.

I have written about all of these ideas before but the difference between then and now is that I was early then and today the change is upon us. You don’t need to look far for proof. The Salesforce-Radian6 nuptials are proof enough but if that was the only proof point you could be skeptical. However, numerous indicators suggest that this is real. Revenue performance management (RPM) with its emphasis on embedding analytics into sales and marketing business processes is a case in point.

RPM is all about building greater certainty into the sales process and if you dig a little it makes perfect sense. When selling into an established customer base the demand is relatively lower than it is when selling into a new market but the costs don’t change much. Consequently, a smart vendor will not simply chase every suspect but gather evidence of need, demand and ability to pay before committing expensive sales resources. Depending on the market, the vendor might forget all about direct sales and opt for channel representation or retail selling, each of which off-loads significant expense.

The reasons are manifold. Margins are smaller the second or third time around and subsequent products have to pack more value. Look at your latest wireless phone, how does it compare in features and functions with the device you had at the beginning of the century? Now, how does your monthly wireless bill compare with the bill you paid ten or more years ago? I rest my case.

All of that speaks to an era when marketing is ascendant. The last time something like this happened, in the US at least, manufacturing was king and we were able to stamp out any number of products for pennies. To keep the engine of commerce running we marketed the heck out of products and ushered in the golden age of advertising abetted by the rise of new technologies ideally suited to mass marketing — broadcast medial.

The situation is not identical today. Manufacturing went to ultra low wage countries and we became an economy dominated by the service industry. Smart vendors have tried to raise the idea of service to an art form calling it an experience and, of course, the experience starts with marketing, and our own new messaging technology, social media.

This entire preamble has a CRM point. If you look at the major CRM suites marketing is, in many cases, under-represented. It is a sub-division of accounting in many places and that might be a good thing. Before marketers could take an equal place in a company’s revenue discussion, they had to learn to talk the corporate talk. In addition to the usual lingo of clicks, responses, placements and square footage, marketing has had to learn the language of ROI and it has done that or at least the process is underway.

Today, in addition to the understanding of the art of marketing, advanced marketers are speaking the language of cost per lead, campaign ROI and revenue. This change comes along at precisely the right time as vendors in both B2B and B2C worlds grapple with a dynamic marketplace where success requires more than brute strength cold calling or uninspired retailing.

In this environment I expect to see more of the established CRM companies taking a second or third look at marketing and to strengthen their offerings beyond the basics. This makes for an interesting time if you happen to be an independent software company specializing in marketing, social media marketing or analytics. The IPO market is beginning to build but as the Salesforce-Radian6 deal shows, a good company doesn’t necessarily need to IPO in order to have a big payday.

Zuora and Salesforce.com announced today a new offering that highlights the strengths of each company and delivers new functionality to the telecommunications industry. Zuora for the Communications Industry is a solution based on the Force.com platform that handles billing, payments and customer care for telco and related industries’ customers.

This makes a lot of sense and, as often happens with Zuora, I am scratching my head wondering why I didn’t think of this. Here are what I consider the highlights.

First, there’s billing and payment for subscriptions with emphasis on the special customer relationship that is defined by a subscription. Subscribers are free to change almost at will. True we’re usually locked into two year contracts for wireless services but that’s a relatively short time and there’s no telling when this model will be vacated in favor of something more fluid. So vendors have to be ready and able to modify the relationship as a customer’s need changes. Often billing systems don’t enable enough of this because they’re mired in a paradigm — and a system — that assumes customers are on board for life, or at least decades. This presents a disruption opportunity for subscription billing providers.

Equally important, this relationship also does a lot to redefine an important aspect of CRM. Over the last few years — in concert with the social revolutions — the contact center function has been deconstructed into two constituent parts that had always been thought of together — service and support.

I think of support as helping a customer with a technical issue related to product use. Trouble shooting. Can you help me fix it? And the like. Social channels have become increasingly popular for peer-to-peer support — customers helping customers. Increasingly, support is now done through Twitter, Facebook, email and other community oriented solutions like the Salesforce Service Cloud and Lithium in a peer-to-peer setting today.

Enterprising customers even make video of service issue fixes and post them on YouTube. In fact, YouTube is so popular that it’s now the number-two search engine. Of course YouTube is not a search engine, people just use it that way and that’s the point. Support is being taken out of the vendors’ hands because customers can do it better, cheaper and faster. Vendors aren’t complaining.

Service is another matter. I think of service as the irreducible part of the vendor-customer relationship where you have to interact on some level. You can only go to the vendor when you have a billing dispute or other issue related to the core of the relationship, a peer relationship won’t do much good. Today’s announcement of a new relationship between Salesforce and Zuora makes that clear and the combination of billing, payments and customer service is spot on.

The idea has legs and telcos around the world are already jumping on board. The initial customer base includes communications vendors from several countries and continents including Canada, (Barrett Xplore) The U.S. (Open Range) and Australia (Macquarie).

This is a significant announcement for Zuora, which recently opened up its European offices, because it defines a new market and positions Zuora very nicely in the catbird seat in this market. It’s important for Salesforce too. Historically, a company like Salesforce has grown by acquisition and by extending product lines. This announcement is more of a product line extension but it’s done through developing partnerships for its existing products. Like last week’s announcement of a partnership with Intuit, Salesforce is developing new channels for its existing product as well as new ways to access them for minimal investment.

I expect to see more of this. In fact, and this is only my hypothesis, last week’s activities might offer an additional insight or market signal. Salesforce bought Radian6 for $326 million showing, as it has before, that it will buy a company for strategic advantage. Radian6 is the category leader in social media monitoring and related things and Salesforce scooped it up to bolster its position.

The same could happen with Zuora if billing and telco service becomes strategic enough and there are some interesting reasons to consider this idea. First, we’re in the beginning or middle of a replacement cycle. Client-server call center systems have exceeded their useful lives and can be replaced by a new generation of SaaS based, socialized solutions that are significantly less expensive to own and operate. Also, ten plus years ago, the wireless industry was very different and VoIP was a dream. These and other factors are potential drivers for the Zuora-Salesforce coalition.

Finally, and this has to be said, Zuora’s CEO and co-founder was one of the earliest members of the Benioff team. Tien Tzuo is a smart guy and a strategic thinker and he’s proven his chops at Salesforce and now Zuora. Zuora’s platform is Force.com too. Lastly, Marc Benioff has a personal investment in Zuora having provided some early cash. All those stars are aligned, but we’re getting ahead of ourselves. It is enough to say that the Zuora-Salesforce alliance makes sense for present reasons. We need to see how the market reacts.

All the chatter about the Salesforce acquisition of Radian6 is quite interesting. A couple of postings from people I respect make good points. First Joe Payne, CEO of Eloqua:

“Conspicuously absent from Salesforce’s network of role-specific “Clouds” is one that centers on the marketing function. Is the Radian6 acquisition the beginning of a Salesforce Marketing Cloud? Someone on the investor conference call asked Marc Benioff whether this was the first move toward business-to-consumer. His answer was worth noting: ‘We’re really seeing the beginning here of the Marketing Cloud.’ Given the excitement we have seen around Revenue Performance Management – a discipline that requires both sales and marketing data – in the executive suite, it is not surprising to see Salesforce moving this direction.

And here’s Jon Miller CMO of Marketo:

“Personally, I think Salesforce will continue to make acquisitions “around” the marketing automation space (such as Jigsaw and Radian6) without moving directly into the category; I also would not be surprised if they bought an email service provider. Salesforce has never shown much interest in a “Marketing Cloud;” they seem more interested in Chatter, the Force.com Platform, and Service Cloud 3, and I suspect future acquisitions will focus on augmenting those capabilities more than in marketing.

It reminds me of the old joke, if you want three economic opinions ask two economists. We’ll need to wait a while to know which is right but I’m betting on Payne’s analysis more or less.

IMHO Salesforce has been deficient in marketing for a long time. Perhaps that’s because marketing’s business processes have been more amorphous compared to sales and service. But more likely, it was because Salesforce grew up selling to emerging tech companies that were selling new category products. Your marketing needs in such a situation are rather minimal. But today, there is much less category formation going on — that will likely change with the introduction of the tablet PC— but for now, companies wanting to sell, and who doesn’t, need to market like many of them never have.

Marketing and customer intimacy have driven the social CRM market for several years and the demand destruction caused by the financial meltdown a couple of years ago tipped the scale. That’s why ideas like revenue performance management are so important today and in order to do RPM you need tools. So it’s not surprising that Salesforce bought Radian6. It was time.

Salesforce.com announced a short time ago that it acquired Radian6 for $326 million. The deal has terms and you can find them here. The big questions about the acquisition are why and what is the future likely to be.

First the why. The easy answer is that it can. Salesforce is generating cash and it is smartly spending its cash on valuable assets in a down market when asset prices are relatively low. The IPO market has been in the doldrums for several years and emerging companies have fewer options for liquidity events.

Ten years ago companies used their stock as if it was cash and bought each other up. That’s not so much the case today though the Radian6 deal included cash and a bolus of stock. But the major point is this deal looks a lot like an IPO-sized payday for Radian6 without the lawyers and the Wall Street leeches attached.

So it was a good move for Radian6 which now joins a stable of hot divisions in what is arguably the hottest company in SaaS or any other form of corporate computing. Now, what’s the future going to be like?

Here it’s always good to go back to root causes or first principals and for me that’s economics. Don’t confuse economics with finance, they are very different. The economic drivers I see running the market include a lot of things that will continue to make reaching out to customers difficult in the years ahead. High transportation costs will limit business travel, declining first world demographics result in slackening demand. Rising demographics in the emerging world markets will increase demand there but, really, what does a first world vendor know about emerging markets? Not enough.

The picture I am presented with is a market where it’s harder to know much about the customer from the usual sources. Increasingly the marketplace is a blackbox that we must use sophisticated analytic tools to ponder. But before you can use analytics, you need to capture a lot of data for analysis.

A study released by Harvard Business Review last summer, “The New Conversation: Taking Social Media from Talk to Action,” said among many things that “Three-quarters (75%) of the companies in the survey said they did not know where their most valuable customers were talking about them.” Ouch!

Another study, “Stop Trying to Delight Your Customers,” said that unhappy customers were twice as likely to trash a vendor than happy customers were likely to praise it. From the study:

25% of customers are likely to say something positive about their customer service experience

65% are likely to speak negatively

23% of customers who had a positive service interaction told 10 or more people about it

48% of customers who had negative experiences told 10 or more others

In that environment, it makes sense to play good defense. Salesforce already has some nice products like the Service Cloud that can track and help companies respond to customers but that’s more or less in the moment. Some capacity to perform longitudinal analysis of customer sentiment also makes sense and I think that’s part of what Radian6 brings to Salesforce.

So Salesforce continues to consolidate by bringing good ideas into the fold. I think they are building a company and a set of offerings for the long term, at least as I see it. Investors and fans should be happy.

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Beagle Research Group, LLC is a CRM analyst firm founded in 2004. We perform market research for vendors and advise end users in CRM selection, deployment and use. We also publish a steady stream of analysis on many of the industry’s most popular topics as well as emerging trends. For example, one of our core pursuits is researching emerging companies to understand current innovation trends. This research informs the advice we give our clients and readers.